Company’s Confidentiality Agreement Conflicts with Whistleblower Rule

April 1, 2015

The SEC brought its first enforcement action against a company for using overly restrictive language in confidentiality agreements with the potential to stifle the whistleblowing process. KBR Inc., a Houston-based global technology and engineering firm, was charged with violating whistleblower protection Rule 21F-17 enacted under the Dodd-Frank Act. The SEC stated that KBR required witnesses in certain internal investigations interviews to sign confidentiality statements with language warning that they could face discipline and even be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department. Since these investigations included allegations of possible securities law violations, the SEC found that these terms violated Rule 21F-17, which prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC.

KBR agreed to pay a $130,000 penalty to settle the SEC’s charges and the company voluntarily amended its confidentiality statement by adding language making clear that employees are free to report possible violations to the SEC and other federal agencies without KBR approval or fear of retaliation.